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Boston Scientific vs Stryker: Which Medical Device Stock is a More Compelling Play?

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TipRanks
·6 min read
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Favorable COVID-19 vaccine developments have revived the hopes of several companies that have seen demand for their products crushed by the unprecedented pandemic. That said, the recent spike in COVID-19 cases continue to spook makers of medical devices, which suffered due to cancellation or postponement of non-emergency or elective surgeries earlier this year. Following the easing of lockdown restrictions, several medical device makers reported a recovery in their sales.

However, the growth trajectory now looks uncertain as COVID-19 continues to wreak havoc. Bearing in mind a challenging business landscape, we will use TipRanks' Stock Comparison tool to place Boston Scientific alongside Stryker Corporation to see which stock offers a more compelling investment opportunity.

Boston Scientific (BSX)

First up is Boston Scientific, which manufactures a range of medical devices that help in the diagnosis and treatment of several medical conditions, including coronary artery diseases, structural heart conditions, neurological movement disorders and cardiac abnormalities.

Boston Scientific shares have plunged 22.3% year-to-date and the reasons are not restricted to the impact of the pandemic on the company’s operations. What hurt investor sentiment was the negative news flow with regard to certain key growth areas. (See BSX stock analysis on TipRanks)

Notably, Boston Scientific previously indicated that it expects its ACURATE neo2 TAVR (transcatheter aortic valve replacement) system to gain US FDA approval in 2021. However, the company now expects ACURATE neo2 TAVR to be approved in 2024, after the product failed to demonstrate non-inferiority when compared to Medtronic’s CoreValve Evolut TAVR valves in the Scope II Trial.

If this wasn't enough, the company announced last month a voluntary recall of all unused inventory of the LOTUS Edge aortic valve systems due to complexities associated with the product delivery system. Boston Scientific revealed that it has decided to discontinue the Lotus TAVR platform following years of struggle. The Lotus TAVR valve was earlier considered a key growth driver, but it failed to deliver the desired growth and also faced manufacturing challenges.

Despite these setbacks, Boston Scientific scores the Street’s Strong Buy analyst consensus based on 13 Buys and 1 Hold. The average price target stands at $43.07, suggesting an upside potential of 22.6% over the coming year.

Earlier this month, Guggenheim analyst Christopher Pasquale reiterated a Buy rating on Boston Scientific but lowered the price target to $43 from $44 after the company announced that it was divesting its BTG specialty pharma business for $800 million. Pasquale noted that the specialty pharma business was a poor fit with the rest of the company’s portfolio and the divestment removes a “potential 2021 overhang.”

The analyst believes that the stock is a prime turnaround candidate heading into 2021, and is one of the more attractive longer-term growth stories. He predicts organic revenue and adjusted EPS growth of 7.5% and 14-15%, respectively, in 2022-2023, which is higher than his large-cap average estimates of 5% and 10%. “And importantly, this strong growth trajectory isn’t reliant on any one product or end market,” highlighted Pasquale.

“While Boston’s entry and now temporary exit from the U.S. TAVR market rightly garners significant attention from investors, the company has a diverse pipeline of growth drivers across each of its business segments. Boston has also supplemented its internal product development with an aggressive M&A strategy, adding a number of compelling new opportunities to its portfolio over the past few years that we believe will become increasingly important to the company’s growth story in 2021 and beyond,” the analyst concluded.

Stryker Corporation (SYK)

Stryker, one of the leading medical device companies, offers its products and services in areas like orthopaedics, medical and surgical as well as neurotechnology and spine.

The company has shown more resilience to the pandemic than many of its peers. It bounced back with revenue growth of 4.2% in 3Q after facing significant pandemic-led disruptions in the previous quarter.

Last month, Stryker completed the $4.7 billion acquisition of Wright Medical after selling certain assets to win the Federal Trade Commission’s approval. The company believes that Wright Medical will add a highly complementary product portfolio to its trauma and extremities business and enhance its presence in the fastest-growing segments in orthopaedics.

In reaction to the completion of the acquisition, Needham analyst Michael Matson reiterated a Hold rating, noting that Wright Medical will strengthen Stryker's extremities business and is largely complementary, particularly in shoulders where the company’s market share is very low. While Stryker had to divest some of its total ankle products to win the regulator’s blessings, Matson believes that Wright’s market-leading total ankle portfolio puts the company in a stronger competitive position.

However, the 5-star analyst sees integration risks and potential for revenue dis-synergies given the “substantial product and sales force overlap” between the two companies, especially in the lower extremities category. (See SYK stock analysis on TipRanks)

Overall, Matson feels that Stryker can return to above-average top line growth relative to its large-cap peers once the pandemic abates. However, he is concerned about the company's 25% capital equipment exposure given the category’s slower recovery than elective procedures, integration challenges associated with the Wright acquisition and growing rivalry in the robotics space from Zimmer Biomet and potentially Johnson & Johnson.

Right now, the Street has a cautiously optimistic outlook on Stryker, with a Moderate Buy analyst consensus based on 10 Buys, 4 Holds and 1 Sell. Given the 12% year-to-date rise in shares, the average price target of $240.92 indicates a modest upside potential of 2.5% from current levels.

Conclusion

Stryker recently announced a 9.6% hike in its quarterly dividend to $0.63, payable in January 2021. Stryker’s dividend yield stands at 1.1%. In comparison, Boston Scientific currently does not pay any dividends. That said, Boston Scientific appears to be a better pick than Stryker, backed by the Street’s Strong Buy consensus rating (which is based on the company’s diversified product portfolio and attractive pipeline), greater upside potential in the stock and lower valuation.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment